Trading Away Democracy 16 ANNEX 2 A GUIDE TO CETA’S FALSE-COMFORT PARAGRAPHS PR SPEAK: WHAT’S WRITTEN IN CETA72 REALITY CHECK: WHY IT PROVIDES ONLY FALSE COMFORT Investment and regulatory measures: “For greater certainty, the mere fact that a Party regulates, including through a modification to its laws, in a manner which negatively affects an investment or interferes with an investor’s expectations, including its expectations of profits, does not amount to a breach of an obligation under this Section.” (Chapter 8, Article 9) A closer look at this paragraph shows that it provides false comfort. Unlike in article 9.4 which clearly prohibits any requirement for states to compensate investors when eliminating subsidies, article 8.9 does not exclude compensation orders when states change laws and regulations and such changes violate any other obligations of CETA such as FET. Investment and regulatory measures II: “For the purpose of this Chapter, the Parties reaffirm their right to regulate within their territories to achieve legitimate policy objectives, such as the protec- tion of public health, safety, the environment or public morals, social or consumer protection or the promotion and protection of cultural diver- sity.” (Chapter 8, Article 9) Reading it against article 9.4 makes clear that the EU does not want to shield public policy measures from compensation orders. So, states will be able to regulate, but can still be forced to pay billions in compensation. A high level European Commission representative, speaking at an event in the US, recently admitted that: “This is not an exception like the general exception... It is a guiding principle which informs” the tribunal’s deliberation73. In addition, the right to regulate is linked to legitimate poli- cy objectives. For-profit arbitrators will decide whether an objective was “legitimate”. This is an easy hurdle to clear for arbitrators intent on getting public compensation for an investor. For instance, measures which are legitimate but which appear “manifestly excessive” (Chapter 8, Annex A, Point 3) could be considered indirect expropriation. Ethics: “The Members of the Tribunal shall be independent.” They shall comply with guidelines on conflicts of interest or a code of conduct and “shall refrain from acting as counsel or as party- appointed expert or witness in any pending or new investment dispute under this or any other international agreement.” (Chapter 8, Article 30) This falls short of real institutional safeguards to ensure arbitrator independence and impartiality, such as fixed salaries. It is particularly worrying that the so called “members” of the tribunals will neither be banned from acting as private lawyers (though not as counsel in other investment claims) and that there is no cooling-off period before or after their appointment. So, they could be part of the small club of investment arbitrators who have so far decided the majority of investment disputes, have encour- aged claims and grown their business with expansive, investor-friendly interpretations of the law. Frivolous and unfounded claims: The defendant state can “file an objection that a claim is mani- festly without legal merit” or an “objection […] that, as a matter of law, a claim […] is not a claim for which an award in favour of the claimant may be made under this Section, even if the facts alleged were assumed to be true.” It is up to the tribunal to decide. (Chapter 8, articles 32 and 33) This is a clear case of letting the fox guard the hen house. The question of whether a claim proceeds will be decided by arbitrators, whose income depends on the case going ahead. This clear conflict of interest may help to explain why not a single dismissal of a frivolous claim is known74 even though some existing treaties allow for it. Another problem is that many investor-state disputes can be fit easily within the wide ambit of the investor privileges granted in CETA. Egregious investor challenges of sound policies such as the Lone Pine and Vattenfall challenges, for example, are very unlikely to be dismissed under such mechanisms.